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European Parliament Approves EUR 500 million Loan to Tunisia Subject to MOU

Home » Economy » European Parliament Approves EUR 500 million Loan to Tunisia Subject to MOU

The European Parliament announced in a press release that it had approved a plan to lend Tunisia EUR 500 million on ‘favourable terms’ under certain political conditions to help it reduce its external debt and consolidate its democratic mechanisms after a vote by Members the European Parliament backed the plan by 561 votes to 76, with 42 abstentions on Wednesday, June 8.

The European loan comes less than a week after the United States signed a loan guarantee agreement with Tunisia on June 3, which ‘will allow Tunisia to access up to USD 500 million in affordable financing from international capital markets’ according to a U.S. State Department notification. It is the third such loan guarantee the U.S. has extended to Tunisia including one for USD 485 million in 2012 and another of USD 500 million in 2014.

To access the money, Tunisia must sign a memorandum of understanding with the EU Commission pledging structural reforms and sound management of public finances.

Tunisia will also have to ensure effective democratic mechanisms, rule of law and respect for human rights, all of which are to be monitored by the EU.

When this is done, Tunisia will have the opportunity to take up the loans within a period of two and a half years.

“The major challenges in Tunisia are the economic downturn, soaring unemployment, and terrorist attacks that frightened away tourists. At the same time, Tunisia has received more than 1.8 million refugees from Libya, a number equivalent to almost 20% of its population. Tunisia’s transition towards democracy still remains absolutely remarkable. Europe really needs to stand by its side now, and I ask the Commission to make this money available as quickly as possible, before the summer”, said rapporteur Marielle de Sarnez (ALDE,FR) in the debate before the vote.

She added that “this macro-financial assistance is not a grant, it is only a loan which Tunisia will have to repay, even though its debt continues to rise.” She invited the EU Commission to “start thinking” along the lines of France and Germany which have decided to convert part of Tunisia’s debt into investment in Tunisia.”

On 1 June 2016, the Council also endorsed the decision to provide a maximum of €500 million in macro-financial assistance to Tunisia.

Tunisia’s economy has been in serious difficulty since the 2011 Arab Spring revolution. In 2015, it was hit by terrorist attacks that disrupted tourist flows and exacerbated its already weak fiscal and balance of payments position. The growth forecast for 2016 is 0.5%, down from 3% in 2015. Unemployment rates are 20% for women, 28.6% for young university graduates and an overall average of 15%.

The EU granted Tunisia €300 million financial aid in 2014. In August 2015, the Tunisian Government asked the EU to contribute €500 million to a second assistance programme, supplementing loans from the International Monetary Fund (IMF).

Following a European Parliament vote in 2016, the EU also granted Tunisia a temporary additional quota for duty-free olive oil imports.